Divorce and Taxes: The State Matters

by Norris Law Group on September 15, 2014

Taxes_150As Benjamin Franklin (and possibly others before him) famously said, “…nothing can be said to be certain, except death and taxes.” As you go through the divorce process, taxes are one of the details with which you and your ex-spouse will have to deal.  Taxes come up even more quickly if you are divorce toward the beginning of a given year, as “April 15” comes up quickly (or each quarter, if you pay taxes quarterly). MarketWatch, a subsidiary of the Wall Street Journal, suggests five factors for divorcing couples to consider regarding taxes. We will cover one of these five factors in a separate blog.

Factor #1: The State Matters

In the Mountain West, Wyoming residents do not have to pay state income tax, while residents of Idaho and Utah do. All US residents, however, are responsible for federal income taxes. Additionally, Idaho—like Arizona, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—is a community property state, meaning that community, or marital, property acquired during a marriage are owned equally by both parties. If a couple divorces in Idaho, each spouse is typically entitled to half of the total community property, less any existing liabilities (debts, loans, etc.). Property and assets owned by only one spouse before the marriage, or that were received by one spouse as a gift or bequest during the marriage (such as an inheritance from  a deceased parent), are usually viewed as separate property that is owned only by that spouse. Utah and Wyoming both divide marital property based on what the courts consider to be the most equitable distribution. This system is a bit different than Idaho’s community property guidelines. In states that divide property through equitable distribution, judges will consider how to most “fairly” divide the property. But a “fair” distribution does not necessarily mean an “equal” distribution. Judges in Utah and Wyoming will consider a number of factors before making decisions on property distribution, including (but not limited to) the length of the marriage, the earning potential of each spouse, the spouse with whom any children of the marriage may live more often after the divorce, etc. If a divorcing couple owns property in more than one state, the laws of each state will apply. An experienced divorce attorney can help you understand how property should be divided as part of your divorce. Once property division is complete, any applicable taxes will be assessed on the assets now owned by each spouse. Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County, UT and throughout Utah, Wyoming and Idaho. Contact them today at 801-932-1238 or online for a free consultation.

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